US healthcare expenditure: The biggest waste of money in the world

I don’t claim to be any kind of an expert on the US healthcare debate. Far from it. But what I do know is that in its totality, healthcare spending in the US is one of the most inefficient uses of money anywhere in the world. Despite the fact that well over half this spending is private, it fails to obey the first principles of efficient market theory. US healthcare makes even the notorious inefficiences of state spending in the UK look tolerable by comparison.

America spends vastly more per head of population and as a percentage of GDP on healthcare than any other nation in the world (see accompanying bar chart), yet this fails to result in notably better life expectancy or quality of life for the US as a whole than other advanced nations that spend far less. Nor is this lack of value for money accounted for by the averaging down effect caused by the sizeable, uninsured minority that enjoys only sub-standard healthcare. American medicine, knowing that in the end it is the insurer that picks up the tab, has a tendency to apply the most extraordinary array of safety first, mainly unnecessary but hugely costly, tests and procedures to almost any condition. This enriches the medical profession and its support industries but is steadily bankrupting the nation and its corporations.

Here’s one example of it I’ve experience of. A friend of mine having recently undergone open heart surgery in Britain was in the US for work purposes when he developed a form of septicemia which had sprung from his earlier operation. This had nothing to do with the supposed short comings and/or negligence of Britain’s National Health Service, as he had had the operation privately. In any case, he was eventually adviced by US practictioners where he had been hospitalised – having by that stage already run up medical bills of in excess of £100,000 for less than a month’s care – that he would have to have the whole operation as a matter of urgency again and couldn’t possibly make the trip back to the UK for the procedure as this would be far too risky.

He quickly determined to take that risk, not just because he couldn’t bear the thought of repeating the open heart surgery, but also because he couldn’t afford the cost, for he had obviously been unable to obtain insurance for a pre-existing heart condition. He survived the trip home, and after a prolonged hospital stay on the right mix of medication, eventually made a full recovery. Well, perhaps he was lucky, but a British consultant would never have recommended that second operation even though it might have been the least risky way of proceeding.

I’m not trying to suggest here that American medical practictioners routinely apply the most costly procedures because that way they make a lot more money, though no doubt quite a bit of this does go on. Rather, the response is dictated by a “money no object” mentality, which is understandable when it comes to matters of health, but doesn’t always produce the best outcomes, only applies to those where money genuinely is no object, and for society and corporate America as a whole may be unaffordable. Certainly it is steadily eroding America’s competitiveness in a globalised economy where developing nations have none of these legacy costs. The fact of the matter is that the money applied to healthcare in the US could not only be more equitably spent, but frankly a lot better spent too.

Jeremy Warner, assistant editor of The Daily Telegraph, is one of Britain’s leading business and economics commentators.